Share analysis: Commercial International Bank - Financial

Commercial International Bank (CIB) was established in 1975 as a joint venture between the National Bank of Egypt (51%) and the Chase Manhattan Bank (49%). Today, the bank is the biggest publicly traded stock on the EGX30, with an index weight of approximately 38%, and the biggest and only exposure to a large cap bank in the Egyptian market. As of December 2014, the bank maintains a solid deposit market share of 7.8%, with a corporate-focused loan portfolio. The bank continues its aggressive network expansion plans to take advantage of an under-penetrated market, and run over the market shares of local and foreign banks. CIB opened 11 new branches in 2014 to reach a total of 161 branches and 588 ATMs.

Helping Hand

The evident rebound in economic activity has served as the main driving force for the banking sector in Egypt, on the back of a pickup in deposit and lending activities. Up until now, CIB has been able to make use of its strong longstanding client relationships to outpace the entire sector with regard to deposit growth, with the bank growing its deposit base 26% in fiscal year 2014 compared to the sector aggregate of 18.5%. The bank maintains efficient utilisation of funds by allocating 57% of its deposit base to government treasuries, in line with the sector average, capitalising on high interest yields to finance increased fiscal deficits. This allocation would likely change in the event of an economic pick-up, devoting slightly higher amounts to the private sector as the economy restructures following fiscal consolidation. During fiscal year 2014, loan growth came in at 17%, outperforming the sector average of 14%.

During fiscal year 2014, the bank’s net profit rose 25% year-on-year to LE3.74bn ($509.8m). Although net interest margins remained flat, but exceptional at 5.34% compared to the year before, the profit growth corresponds to a rapid balance sheet expansion and improved efficiency, where cost-to-income recorded 22.7% compared to 23.5% in 2013, the lowest cost-to-income ratio in the last five years. Interest income from clients showed an 11% increase, while interest from treasuries showed 29% growth corresponding to a 33% increase in government treasury investments. Service charges and fees also rose to LE1.7bn ($231.7m) on the back of a revival in economic activity, while total non-interest income dropped to LE1.7bn ($234.4m) from LE1.9bn ($261.7m) in 2013.

In terms of asset quality, CIB’s non-performing loans (NPLs) increased to 4.67% from 3.92% at the end of 2013. Accordingly, coverage ratio dropped to 139% from 160%, with provisioning charges recording LE589m ($80.3m). CIB’s focus on institutional lending over the past years helped maintain asset quality measures at solid levels. The above measures, backed by CIB’s high portfolio quality, enabled the bank to manoeuvre safely through a difficult period.

Development Strategy

With the immense opportunity in the banking business, and CIB’s aggressive expansion plans, we see a lot of potential for growth in the bank’s future. Despite the fact that many players in the private banking sector are foreign banks, CIB possesses a capital structure advantage with an adequate Basel II capital adequacy rate of 14.05%, and it is free of higher capital charges on sovereign risk facing non-Egyptian banks. CIB seeks to bolster lending operations via a boom in capital expenditure lending in the next five years, with planned investments worth tens of billions of dollars drawing from the Egyptian Economic Development Conference, the Suez Canal Axis projects, the restructure of Egypt’s energy sector and multiple huge real estate development projects.

CIB has maintained stable asset quality without significant deterioration, despite the Central Bank of Egypt raising benchmark interest rates later in the year, thanks to its effective risk management. The bank has the lowest NPL ratio among its peer group, with the sector average holding an 8.5% NPL ratio.